Optimization models are widely used in finance where they are employed primarily in two major portfolio-based applications: Asset Allocation models and Portfolio Construction models. The Asset Allocation models are used to create major strategic allocations for an investment portfolio, such as a pension fund with one or more broad market segments (e.g., equity, fixed income, real estate, cash, etc). The Portfolio Construction models are used to create portfolios consisting of specific securities having very specific implementation constraints and objectives, such as trading efficiency, purchase constraints, etc.
Results generated by the models are typically represented graphically on one or more Efficient Frontier charts, which may simply be line graphs plotted on x-(risk) and y-(return) axes. However, these charts do not provide analysis in terms of a distance from each asset class within the portfolio. For example, the line graphs do not show trends in risk/return scenarios for each asset class.